The Gupta Effect: Eskom’s coal crisis worsens – Yelland

CAPE TOWN — A near-perfect storm of maladministration, poor planning and erstwhile Gupta snouting could leave vast regions of South Africa without electricity this summer. That emerges from this analysis by Chris Yelland, probably the country’s leading publisher/watchdog on our energy industry. When you add municipal woes/objections plus Transnet Freight Railway’s underperformance, a potential tsunami of troubles stands to turn the lights out. While the sun will come up tomorrow in Mpumalanga, our energy-producing heartland, it’s when it goes down that Yelland is worried about – and with good reason based on the admissions he’s extracted from Eskom. When you pile dysfunction upon dysfunction, something has to go. Part of Eskom’s rocky road is that with Transnet’s rail capacity expansion way behind, coal supplies have to be expensively trucked into power stations, with resultant deterioration of tar roads and traffic congestion. Municipalities en-route have raised objections. Put together, all this, plus former Gupta coal mine-ownership, will hasten the search for alternative energy sources by industrial and domestic users, meaning Eskom’s legacy, partner dysfunction and poor response could eventually do the power utility out of a job. No bad thing – except we have to pay the interim price in hard cash and inconvenience. – Chris Bateman

By Chris Yelland*

Information being received by EE Publishers indicates that the coal crisis at Eskom is worsening, with at least four and possibly more of Eskom’s 15 coal-fired power stations now having less than ten days of coal at hand on their stockpiles.

Chris Yelland, EE Publishers

Eskom has advised EE Publishers that it requires an additional 1,3-million tons of coal per month to recover all power stations to the required level of stock by end of the its current financial year, namely 31 March 2019.

However, Eskom’s emergency plan to commence trucking coal from Medupi in August 2018 to its power stations in Mpumalanga province appear to have stalled, at least for the time being, in the face of various objections raised by municipalities and other authorities along the route.

Eskom has also advised that while transportation of coal by rail is its preferred option, development work with Transnet Freight Rail is underway, and rail transfer of coal from Medupi has not commenced.

The emerging coal crisis at Eskom was first revealed in an article by EE Publishers entitled “Inside the coal supply crisis at Eskom…”, which was widely published and reported upon in April 2018, and which gave the background and reasons behind the utility’s coal supply shortages.

As a result of the above article, Eskom advised in April 2018 that seven of its coal-fired power stations in Mpumalanga faced shortages, and that coal was being transported by truck from other Eskom power stations in Mpumalanga to alleviate the problem.

Subsequently, Eskom CEO Phakamani Hadebe has since reported to Parliament on 28 August 2018 that nine of its power stations in Mpumalanga had “very low coal stockpile levels”, and that this had been reported to National Energy Regulator of South Africa, NERSA, as required by the Grid Code. Mr Hadebe further told Parliament that “to manage this coal during the rainy season is going to be a huge challenge”.

NERSA confirmed to EE Publishers late last week that Eskom has reported that “there are currently ten stations with less than twenty days of coal, and five of these with less than ten days of coal in their stockpiles”. Eskom has also indicated to NERSA that it is in the implementation phase of moving coal from Medupi to Kusile and Kendal power stations.

Eskom further advised EE Publishers that two major tender enquiries issued in 2017 are at negotiation stage, and as such no contracts have been concluded as yet. However Eskom added that some 18-million tons of coal has been contracted from urgent requests for proposals issued in 2017 and 2018, and that a further 12 contracts are in the pipeline to be concluded following Eskom board approvals in August 2018.

Eskom believes that these contracts will stop the decline in coal stock levels, which was aggravated by Tegeta going under business rescue and its mines failing to deliver coal. The Tegeta failure alone is said to have resulted in a shortfall of 713 000 ton per month (8,5-million tons a year) to affected power stations (Hendrina, Komati and Majuba), and resulted in Eskom having to transfer coal away from power stations with healthy stock levels.

Eskom says it has fewer than 20 days of coal supplies at ten of its 15 coal-fired power stations. It says the current shortage of coal supply at some of its power stations is posing a threat to national power supplies. #sabcnews

It appears, however, that Eskom may have set over-ambitious price targets and requirements in its coal procurement process, based on the alternative option available of transporting coal by road from its Medupi power station in Limpopo province. Eskom now acknowledges that the exporting of Eskom grade coal, and the current export spot price of coal, is making it difficult for Eskom to conclude coal contracts within its affordability limits.

Eskom’s has massive stockpiles of about 20-million tons of coal at Medupi as a result of power plant’s late completion and Eskom’s “take-or-pay” coal supply contract with the adjacent Exxaro Grootegeluk coal mine. It is understood that the price tag of this road transport alone would cost Eskom about R500 per ton over and above the approximately R300 to R350 per ton that Eskom has already paid for the coal itself.

The coal majors operating Eskom’s tied collieries in Mpumalanga have experienced declining outputs resulting from aging mines and infrastructure which Eskom has neglected to recapitalise, preferring instead to procure coal from emerging coal miners. And as detailed above, Eskom has experienced delays in contracting for its coal requirements in Mpumalanga.

In the meantime Eskom’s alternative “Plan B” to commence trucking coal from Medupi in August 2018 to its power stations in Mpumalanga has stalled in the face of objections raised by municipalities and other authorities along the route in respect of dirt-road construction, road damage, traffic congestion and safety issues.

This has resulted in the continued decline in its coal stockpiles at Eskom’s Mpumalanga power stations, which continue to burn coal faster than Eskom can source replacement coal.

Eskom running low on coal yet again. Another kick in the nuts for economic recovery.

To calculate the number of days of coal usage available on a stockpile at a power station, Eskom does a stocktake survey/audit every now and again. In the interim, from this Eskom adds the coal delivered to the stockyard each day, and subtracts the amount of taken from the stockpile each day to burn in the power station. Then, using standard power station burn rates, the nett calculated tons on the stockpile is converted into the number of days of coal usage available.

However there are several uncertainties that may fudge the figures. The amount of coal fines and duff coal on the stockpile is generally somewhat uncertain. It is also reported that fraud and scams in respect of coal deliveries are rife, such as under-deliveries, discard coal deliveries and empty truck deliveries.

Furthermore, in calculating the stock days available on the stockpile, the standard burn rate of a power station may be used based on the rated capacity of the power station. Alternatively, a reduced burn rate may be used when a power station is being operated at a lower capacity than rated, based on the actual burn rate for the last few days. This of course over-estimates the number of stock days available.

However, the burning question is whether there is any likelihood of some power stations running out of coal, and whether there any risk to security of supply and load-shedding as a result. While Eskom acknowledges that “the current situation is not ideal”, it believes that “barring unforeseen events and circumstances, the current coal supply plan and forecast is for no stations to run out of coal”.

However, as in the load-shedding of 2007/2008, the weather during the approaching rainy season may be the deciding factor…